Financing strategies and policies

Financing strategies and policies

Also, the cost of raising capital should be minimum. Good financial strategy is needed to maintain an adequate cash flow to keep the business operating and also for development. In current business environment, corporate leaders and decision makers use numerous corporate financial strategy to: Actively improve shareholder value Achieve venture capital Promote corporate progress.

Objectives and goals of financial strategy

The history of finance and strategy in corporate settings has been one of divisiveness and territoriality. Restricted Policy In restricted policy, the estimation of current assets for achieving targeted revenue is done very aggressively without considering for any contingencies and provisions for any unforeseen event. A suggested structure and contents for a financing strategy are outlined below. The time factor while mobilizing funds should also be kept in mind. In current business environment, corporate leaders and decision makers use numerous corporate financial strategy to: Actively improve shareholder value Achieve venture capital Promote corporate progress. Because of its conservative nature, this policy is also called as conservative working capital policy. There are non-monetary factors that it ignores like customer and employee satisfaction, government policy, market trend etc. We know that earnings are more important than higher earnings.

Resources can be leveraged to upsurge the returns for shareholders. For instance, shareholders of public companies may discipline management for decisions that negatively affect a company's share price in the short term, even though the long-term health of the company becomes more solid by the same decisions.

importance of financial strategy

The right timing of capital issue, therefore, becomes crucial while raising funds from various sources. Multinational companies in twenty-first century, share many of the same physiognomies. There are some factors that companies must consider when devising their financial strategy: -Since the interest on debt is deductible, does it make sense to borrow more?

Challenges in strategic financial management

However, before a company can manage itself strategically, it first needs to define its objectives precisely, identify and quantify its available and potential resources, and devise a specific plan to use its finances and other capital resources toward achieving its goals. Level of general reserves — usually expressed as the number of days that the organisation could continue without external funding. While finalising financial plans, all contingencies should be taken into account. In the diagram, it represents the point Rx which uses the highest level of current assets for achieving the same level of sales. The Elements of Strategic Financial Management A company will apply strategic financial management throughout its organizational operations, which involves designing elements that will maximize the firm's financial resources and using them efficiently. Thus, companies that manage their funds well can build distinct competitive advantages over a period of time. This policy guarantees the entrepreneur of the smooth functioning of the operating cycle. Market valuation is described as a measure of how much the business is worth in the marketplace. Accounts receivable policy may state about payment terms, credit period, credit limit, etc. While every corporation typically deals with these three areas when setting its financial policies, each organization must examine many factors that are unique to its business and situation before setting up its overall policies.

Here, the liquidity is very high and the direct impact on profitability is also high.

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Financial Policies and Strategies of an Organization